AM Best assigns credit ratings to Universal Insurance Company, Guernsey

LONDON: AM Best has assigned a Financial Strength Rating of B+ (Good) and a Long-Term Issuer Credit Rating of “bbb-” to Universal Insurance Company, Guernsey. The outlook assigned to these Credit Ratings is stable.

The ratings reflect UIC’s balance sheet strength, which AM Best categorises as strong, as well as its strong operating performance, very limited business profile and marginal enterprise risk management (ERM).

UIC’s balance sheet strength is underpinned by risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), and benefits from a conservative investment portfolio. BCAR is expected to remain at the strongest level, with good internal capital generation continuing to support the company’s growth.

An offsetting factor in the balance sheet strength assessment is the company’s small capital base, which heightens the potential for volatility in risk-adjusted capitalisation.

Since its creation in 2014, UIC has reported strong operating performance, evidenced by a five-year (2015-2019) weighted average return on capital of 40.3%. Earnings are derived primarily from the company’s excellent underwriting profitability (five-year weighted average combined ratio of 24.2%), whilst the very conservative and highly liquid investment allocation only returned marginal income.

UIC provides ancillary motor policies, primarily distributed by brokers, in the U.K. market. The company’s profile is highly concentrated as it operates in a single line in a single territory, which makes its business model vulnerable to changes in the U.K. motor market. Whilst UIC aims to grow its book of excess motor policies and create new products for the motor insurance market, its profile is expected to remain very limited.

UIC’s ERM framework is considered evolving. AM Best expects UIC to continue to develop its ERM and governance frameworks to match its risk profile and future growth plans.

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